Jobless Recovery & Other Illusions

Jobless Recovery & Other Illusions

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Economic funk continues

The economic numbers continue to pour in with very few people believing that they offer a promise of a sustained recovery. That’s bad news for America, because high unemployment (9.5 percent in July 2010) means that every sector of the economy will remain depressed longer than some imagined it would.

For many Americans, the news comes as no surprise. Wages are stagnant, living costs continue to rise and the housing market continues to sputter along. Come January 2011 millions of Americans will be in for a rude awakening when the Bush tax cuts expire, ushering in an across the board tax increase with the highest payroll tax rate increasing from 35 to 39.6 percent.

The capital gains tax rate will increase from 15 to 20 percent while the estate tax, gone for 2010, will return in 2011 and at a whopping 55 percent for high wealth individuals. Congress and President Obama have talked about intervening to lessen the impact on Americans, but our elected officials on a spending binge, money has to come from somewhere to pay for government programs.

In July, U.S. employees cut 131,000 jobs but unemployment remained steady at 9.5 percent. That’s because thousands of Americans left the job market giving up on finding a job at least for now. That 9.5 percent number has been widely criticized for being inaccurate with some estimating that the real unemployment number should include people who work part-time jobs, but would prefer full-time work. In that case, the number is believed closer to 16.5 percent which means one in six people are not working full-time.

Auto sales remain far below numbers realized just a few years ago. At its peak, 16 to 17 million new cars were sold annually. Today, that number is hovering just above the 11 million mark.

The 11 million mark means many things including:

  • Fewer workers to do the job. Payroll taxes take a hit because there aren’t as many people working.
  • Sales taxes take a hit because fewer people are buying cars. Registrations decrease, less money is spent on insurance, and aftermarket parts and supplies aren’t ordered because people aren’t dressing up their new vehicles.

No one has put a number on what that lost means to the economy, but most certainly billions of dollars in tax revenue are not brought in when consumers curtail spending.

The housing market is also in a funk. The $8,000 new homeowners rebate program has ended and sales have tumbled. Significantly, home prices are still falling with Fannie Mae predicting those prices will continue to fall for the rest of 2010 and into 2011.

Despite the recent gloomy news, most economists surveyed by USA TODAY believe the U.S will avoid the dreaded double-dip recession though eight in 10 have downgraded their economic outlook. Recent negative reports and Europe’s own problems with debt have tempered their enthusiasm for a robust recovery.

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